McClatchy aiming for role as leader

Knight Ridder deal made in uncertain times

March 14, 2006|By NICK MADIGAN | NICK MADIGAN,SUN REPORTER

With the purchase of Knight Ridder Inc., the nation's second-largest newspaper chain, the smaller McClatchy Co. has made a bold investment in becoming a leader of an industry beset by circulation losses, staff reductions and uncertainty.

The $6.5 billion purchase of Knight Ridder, after five months of doubt about whether a deal might be made, was seen by some analysts and newspaper people as rare positive news in a fragmenting news landscape.

McClatchy's announcement was accompanied by news that it would immediately put up for sale 12 of the 32 Knight Ridder papers, including two of its most journalistically respected, The Philadelphia Inquirer and the San Jose Mercury News. Once the sales of those 12 papers have been completed, McClatchy will be left with Knight Ridder's other daily papers - in addition to 12 papers it now owns - and about 50 non-dailies.

The dailies to be retained, which fit McClatchy's strategy of expanding into fast-growing markets, include the Miami Herald, The Kansas City Star, the Fort Worth Star-Telegram and The Charlotte Observer. McClatchy officials said the other papers are being sold because of slow growth in their markets.

McClatchy's reputation as a small but smartly run operation has made it a welcome buyer at some of the papers it will own.

"The general reaction here is that McClatchy is the preferable choice," Carl Hiaasen, an author and a 30-year veteran of the Miami Herald, said in an interview yesterday. "McClatchy is not that bad, which, in the parlance of the newspaper industry, is a ringing endorsement."

James L. Baughman, director of the journalism school at the University of Wisconsin, Madison, said that if he had been asked to pick an ideal buyer for the Knight Ridder assets, it would have been McClatchy. The purchase of a large media company by a much smaller one has a successful precedent - "the fish swallowing the whale," as Baughman put it - in the 1986 merger of Capital Cities Inc. and ABC.

"Now, are they biting off too much?" he asked, referring to McClatchy. "I hope to God they can pull it off without diminishing their product."

The transaction values Knight Ridder at about $6.5 billion, the two companies said yesterday, including about $2 billion in assumed debt. Knight Ridder's board agreed to seek bidders for the company last fall under pressure from one of the company's largest investors, Bruce Sherman of Private Capital Management, a unit of Baltimore-based investment company Legg Mason Inc.

"Opportunities like this come perhaps once in a company's lifetime, and we're thrilled to have this chance to extend McClatchy journalism and our proven newspaper operations to 20 high-quality newspapers in high-growth markets," Gary Pruitt, chairman and chief executive officer of McClatchy, said in a statement.

Pruitt said there would be added revenue from Knight Ridder's non-newspaper assets, such as its Real Cities Web portals and CareerBuilder, which are part of a partnership between Knight Ridder, Gannett Co. and Tribune Co., owner of The Sun. All three companies have the right to buy Knight Ridder's share of those assets, according to the trade magazine Editor & Publisher.

"We know that pessimism about our industry is indeed widespread these days, but we believe it is misplaced. Newspapers remain profitable businesses with strong audiences," Pruitt said in a conference call with analysts yesterday morning.

Still, after months of not knowing what their future held, employees at some of the Knight Ridder papers that McClatchy plans to sell face even more disquiet.

"It's been wait-and-see," said John Myers, a reporter at the Duluth News Tribune in Minnesota for 19 years and a former president of the Lake Superior Newspaper Guild. "Everyone's been plugging away at their journalism while looking over their shoulder wondering who's going to be signing the checks. Depending on who buys us, it could have a very good outcome or a miserable outcome."

Myers said the paper's editorial department had lost 20 of its 80 members in the last five years.

"The concern is that whoever comes in isn't going to just want to increase the bottom line," Myers said. "We're hoping for an investor who's willing to settle for profits that will allow us to keep our future. We know it's not going to be happy days and drunken spending."

Some observers of the industry see far too much pessimism in its ranks, and view the McClatchy-Knight Ridder deal as a harbinger of good things to come.

"I have to say, unequivocally, the worst enemies that newspapers have are the myopic, shortsighted people who work for them who say they're doomed," Len Kubas, a consultant in Toronto who specializes in media companies, said yesterday. "Newspapers have a terrific opportunity to combine product on paper with product on the Internet. In many markets, newspapers have franchises that many communications companies would die for."